McMicken College of Arts & SciencesUniversity of Cincinnati

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Marketing His Options Leads Economics Major to Internship

A summer job in Chicago cements Sean Sullivan's plans for a post-graduation career as an options trader.

Date: 9/12/2008
By: Britt Kennerly
Phone: (513) 556-8577
Photos By: Britt Kennerly
Economics major Sean Sullivan spent summer 2008 in the pits – the pits, that is, of the Chicago Board of Options Exchange.

Sullivan, a senior who's minoring in math and planning on a career as an options trader, snagged a close-up look at the future through an internship with Group One Trading, a proprietary trading firm based in Chicago.

Surrounded by full-time trainees who included a former Wall Street investment banker and four master's graduates, and four other interns from major universities, he not only survived but thrived.

Sullivan
Sean Sullivan, senior economics major

  

The Anderson Township native, president of the UC Student Alumni Council, landed the opportunity through, well, weighing his options – career and otherwise.

"Through researching the options business I found that pretty much all listed futures and options are traded centrally not on Wall Street, but in Chicago," says Sullivan, an avid bike rider, reader and member of Phi Kappa Theta, the UC Economics Society, Omicron Delta Kappa Honorary and Order of Omega Honorary.

"So I sent out my resume on my own, looking for a firm that has established themselves but not a big investment bank. I found Group One because of some of the products they've rolled out that have been immensely popular. I had to kind of stick my foot in the door to get the job, but I managed."

Sullivan's single-mindedness when it comes to his future dates to summer classes he took at UC just after his high-school graduation, and a first glimpse at economics.

"I instantly fell in love, and I picked it up right away," he says. "At the same time, I was playing around with my savings in the stock market; pretty soon, I was reading as much as I could to try to understand why so much money is made and lost. The stock market is, on the surface, just a function of supply and demand. When you go deeper, though, you see how much math is really involved – especially in derivatives. So then I started studying as much math as I could too. I could major in math but instead I'm taking specific classes like financial mathematics, which applies very specifically to my field."

His true passion is the stock market – specifically, listed equity options or derivatives.

"An options market maker (a certain type of options trader) 'quotes' every option for a given stock. P&G, for instance, has about 200 listed options trading on it," he says. "If the option is worth, say, $2.05, the market maker's 'bid,' the price at which he'll buy it, is $2. His 'ask,' the price at which he'll sell it, is $2.10. That 5 cents is the 'edge' that the market maker earns in profit for providing liquidity to the marketplace."

The Department of Economics, Sullivan says, prepared him well.

He knows every professor in the department, and "They've really encouraged me to specify and study what I love," he says.

"I was even picked for the Taft Undergraduate Research Grant, and my topic is options pricing and trading. I've also learned a lot from my math classes, especially from Professor Srdjan Stojanovic, who is world renowned in Financial Mathematics and is starting a financial mathematics center here at UC. I am working with Professor Stojanovic in conjunction with one of my economics professors, Jeff Mills, on my research."

Sullivan's internship gave him an all-over look at the career he craves. Mornings, he recalls, were spent reconciling the previous day's trades.

"During market hours, we manned our 'booth' on the side of the floor," he says. "We communicated to all of our traders, risk managers and tech staff through Internet chat. We'd do everything from watching traders' stations if they were away to fetching coffee and lunch. Most of what we did, though, was based on maintaining our trading operations: making sure our traders had the right settings configured in their software, ensuring new trades were placed in the proper accounts and making sure our traders didn't lose too much money in the event of an emergency, like if their computers froze."

Just how loud, crowded and crazy is it on the trading floor? And how are people actually communicating?

"It is pretty wild to believe that all the chaos in a pit is actually quite ordered," Sullivan says. "In every pit, things happen so incredibly fast that there is no room to mess up or give a broker or another trader the wrong price – you will lose money!

Most of the pits, he adds, "are pretty quiet compared with what you see in the movies like 'Trading Places.' That's because, in all the stock pits, but not the big products like the S&P 500, the traders do most of their trading through computers."

Each trader is set up in a pit with a minimum of four computers, handling most orders electronically for speed.

"If a big order comes in and needs to be negotiated, then it will be done 'open outcry,' " Sullivan says. "We communicate to our traders with electronic chat rooms – although in the big, wild pits, like the S&P 500, clerks stand on the perimeter of the pits and hand-signal information from their risk managers and upstairs traders."

And the traders themselves, Sullivan adds, "aren't wild cowboys like so many people think."

"Most of the traders come from top schools with training in very difficult fields like math and engineering," he says.

"It's hard to tell, though, because people dress down, eat greasy Chinese food and mouth off like they're at a baseball game. In the pits though, you really see what people are made of. Anybody who has been there very long knows what they're doing very well. It is extremely competitive in there."

Is he wary about entering this field in volatile financial times?

“Generally, market makers can actually do a lot better in volatile markets because, as fear grows, people become more anxious to hedge their positions or liquidate what they already have, and market makers get to trade more at better prices,” Sullivan says. “The real fear for a market maker is a one-way market, only buyers or only sellers, because then the market maker has to put on all the risk that nobody wants.  He can do this, for a certain amount of time.  If things get too bad too quickly, that is where you can lose a lot of money.”


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